Policy transmission: Das says banks can do more

After complaining about the poor transmission, Reserve Bank governor Shaktikanta Das Thursday seemed to appreciate banks' effort on this front, but sought "higher and faster" pass-ons from now onwards.

The central bank cut its key rates by 0.25 percent earlier in the day, making it 0.75 percent in cuts in three consecutive policy reviews this year. At 5.75 percent, the repo rate is at the lowest in nine years.

"It has been noticed in the past that it took four to six months for transmission. But this time, transmission has been faster than that," Das told reporters at the central bank headquarters at the customary post-policy presser.

He further said the banks have already passed on 0.21 percent of the 0.50 percent in rate cut effected in the first two rate cuts by the central bank in the year, going by the weighted average lending rate reduction. However, the same rate for the older borrowers have gone up by 0.04 percent, the governor noted.

"Our expectation is that as we go forward, there will be higher and faster transmission," he said, adding the impact of the same will be seen in consumer and two-wheeler loans.

On the move to shift to an external benchmark, he said the RBI is monitoring the transmission of its cut into the banks' marginal cost of funds based lending rate at present.

Das was disappointed with the rate transmission in the past, and had asked bankers to expedite the same.

"Transmission of rates is very important especially after the central bank announces a rate cut...we will discuss the issue with the banks and see what needs to be done," he had said in February after the first rate cut. The RBI brass met the bankers on February 21 regarding the same issue.

In April, after announcing the second rate cut, he had said, "after the last meeting I had held with banks, some of them have marginally (up to 5-10 bps) cut their MCLRs, but they need to do more," he had said.

Lending rate cuts by banks can help increase loan demand and drive the sagging economic activity.